Technology Adoption in Governance – Step in Right Direction, Says Indian Industry Chiefs

NASSCOM has welcomed the Union Budget 2016, while terming it as a mixed bag for the sector. The budget reiterates the 7.6% GDP growth rate for the country and provides a slew of incentives for the rural, agricultural sector to enable inclusive growth.

The annual budget proposals set the policy direction for the country and Budget 2016 does articulate the emphasis on accountability, transparency and governance. However, in the backdrop of global economic volatility, there are unmet expectations on policy announcements that enable ease of doing business for our sector.

Mohan Reddy, Chairman, NASSCOM said “Our wish list for Budget 2016 included three key priorities – policy bottlenecks including ease of business; nurturing start-ups, products and ecommerce sector; and clarifications on transfer pricing to enable inward investments in India. Budget 2016 only partially covers these priorities. Extension of Section 10AA for SEZ units till 2020 is a positive outcome though the imposition of MAT on startups will not allow the full impact of the benefits to be realized”

R. Chandrashekhar, President, NASSCOM said, “The finance minister’s speech had a strong emphasis on leveraging technology to transform India. The initiatives announced today combined with swift implementation of Digital India will help to digitize India and provide effective citizen services. We would urge the government to move forward at a swift pace and build an effective PPP model”.

NASSCOM will continue to work with the government to address procedural issues that impact the sector.

Key announcements

-          Sunset date for Section 10AA of SEZ Act extended till 2020. This will enable technology units to set up and commence operations in SEZs

-          Place of Effective Management deferred by 1 year: A key ask to provide an opportunity for deliberations and address concerns on the provisions.

-          Section 80 JJAA now applicable to services companies as well, is a boost for BPM companies who have been at the forefront of creating employment

-          Extensive emphasis on technology adoption by the government across SMBs, land record modernization, Aadhar adoption, procurement platforms etc

-          Startup India announcement of 3 year income tax exemption welcome, though continuing MAT imposition a dampener.

-          Holding period for investment in unlisted companies to qualify for long terms capital gains tax reduced from 3 to 2 years. Our recommendation was for 1 year in line with investments in listed shares

-          High Level Committee chaired by Revenue Secretary to oversee fresh case where the assessing officer proposes to assess or reassess the income in respect of indirect transfers by applying the retrospective amendment

-          Section 206AA amended to ensure TDS shall not be deducted at a higher rate in case of non-residents not having PAN, as per the DTAA provisions

-           Interest rates on delayed payment of duty/tax across all indirect taxes being rationalized at 15%, with some exceptions.

-          Clarity on full CENVAT credit for input services exclusively used in taxable output streams.

-          DTAA benefits of reduced or NIL withholding tax for payments made to non-resident investors by AIF (category I and Category II) restored, and 10% withholding removed.

-          BEPS action plan - Country-By-Country Report and Master file applicability from 1^st April 2017

-          Equalisation levy on consideration for any specified service received or receivable by a person, being a non-resident. Specific service currently includes online and digital advertisement

Key proposals not addressed

-          Removal of dual levies on software products not addressed

-          Domestic investors continue to face higher tax rates -  Angel taxation, higher long term capital gains tax

-          Revision of criteria to carry forward losses to allow for capital infusion in business not considered

-          Transfer pricing issues related to safe harbor margins, APA roll back rules not notified

-          Rationalisation of tax structure awaited. So far announced for new units in manufacturing set up on or after 1 March 2016

-          No roadmap on MAT and different cess rationalization

-          R&D credits not applicable for technology sector, lowering of deduction rate not conducive to encouraging tech R&D

-          Clarifications not provided on place of provision of service rules

Other Reactions from India Inc

"Enhanced investment in the budget for infrastructure, agriculture, rural and social sectors would support India’s continued journey of inclusive and sustainable growth. Protected and secure technology infrastructure fostering engendering trust will be critical to success of projects like e-marketplace, digital vaults for certificates and e-procurement. Legislative backing for Aadhaar should have requisite privacy provisions. Overall, a prudent budget, indeed!" Managing Director, India, Symantec.

The IET’s vision is also to build a strong engineering ecosystem in India that contributes to the society in resolving critical societal challenges. We are happy to note that the budget is aligned with our vision and we see immediate opportunity from each section of the society – government, corporate and academia to collaborate for economic development. Digital literacy for 6 crore rural households combined with the promise of 100% electrification will help increase education penetration in Tier- 2 and 3 cities as well. To sum up, the budget is certainly a welcome step for the common masses and in line with the  government’s vision to transform India” said Shekhar Sanyal, Director and Country Head, The IET India.

“The budget has been encouraging for startups and MSMEs, the provisions announced by the government will not only help ease the hurdles startups face but also give budding entrepreneurs the required boost. The positives from the budget can be taken that the government wants to play the supporting role and that of an enabler to the startup ecosystem. The Budget looks to provide important steps around the ease of doing business, taxation, access to capital for MSMEs and skilling,” says Dilip Modi, Founder and Chairman, SpiceConnect.

Modi adds saying that we welcome the revised ceiling for presumptive taxation scheme from 1 crore to 2 crore and capital gains exemption, that will encourage the incubators and investors keep invested in the startups. The allocation of funds to set up entrepreneurial hubs under Stand up India scheme will encourage entrepreneurs from the backward classes, SpiceConnect also welcome the SETU fund of Rs.1000 crores to boost innovation and incubation. However there were no announcements pertaining removal of angel tax, the exit policy and listing norms for startups in the Budget presentation which was much awaited.